Democrat reality check: 4 fiscal fantasies favored by the left

Jon Cowan and Jim Kessler / Special to The Washington Post

There is a rising chorus on the left, most recently articulated in a Washington Post op-ed by Neera Tanden and Michael Linden (“Deficits are not destiny”) of the Center for American Progress, that our fiscal conversation should be declared over and plans for meaningful entitlement reforms mothballed. These voices argue that we can have substantial new spending on public investments, a secure safety net, no middle-class tax increase — all without addressing entitlement spending.

Lo, if it were so. But the left’s reasoning is predicated on four fiscal fantasies that Democrats must see through if they hope to expand the economy, help the middle class and keep the safety net solvent.

Fantasy No. 1 is that taxing the rich solves our problems. Let’s say the top income tax rate were raised a whopping 10 points, to 49.6 percent — a level higher than anything under serious consideration. Tack on the “Buffett rule,” with its 30 percent minimum tax on millionaires to squash loopholes. And let’s take a whack at wealthy inheritances, cutting the estate tax exemption by about one-third and setting the rate on large estates at 45 percent.

If we leave entitlements be, our annual budget deficit in 2030 would still be $1.3 trillion in today’s dollars, not much different from the $1.6 trillion deficit we’d have if income tax rates for the wealthy are kept the same. Sure, raising some additional taxes on the wealthy is necessary, but it is not nearly sufficient.

Fantasy No. 2 is that “we can have it all” — a bigger safety net and more investments that spur growth and opportunity. Events of the past 50 years say the opposite.

In the mid-1960s, the federal government spent $3 on public investments for every $1 on the major entitlement programs. By the early 1970s, the ratio was one to one. Last year, it flipped. The federal government spent $3 on Social Security, Medicare and Medicaid for every $1 on federal investments, according to our analysis of data from the Office of Management and Budget. By 2022, the ratio will be one-to-five. In other words, entitlement programs are drowning out public investments just as international competition and technology demand that we need these investments the most.

That is a 50-year trend, but what is most mind-boggling is that some on the left still cling to a belief — bordering on faith — that if a spending program is worthy, voters will support it without trade-offs. Yet the evidence is clear that as Democrats have sought to increase spending beyond a certain point, voters have taken them to the woodshed. Recall 2010: The health-care bill (which our organization vigorously endorsed) exceeded the limits of what voters were willing to spend after the 2009 stimulus, auto rescue and bank bailout. That November, Democrats lost the House, Republicans controlled 29 governorships and the tea party became dominant.

Fantasy No. 3 is that a delay on entitlement fixes is benign for the middle class. As evidence, some liberals point to this year’s Medicare trustee report, in which the program’s fiscal outlook — mercifully — improved. In truth, it improved from horrid to awful. We can’t make even that boast about Social Security, where the outlook is plain wretched. Over the past 10 years, the Social Security insolvency date had leapt forward from 2042 to 2033. The hope was that an improving economy would push the date farther out. It did not, and every indicator of Social Security health worsened between the 2012 and 2013 trustee reports.

If there is one message from the trustee reports, it is that every year we wait, the inevitable fixes to Social Security and Medicare get harder. Here is one example: Several years ago, proponents of an all-tax solution to Social Security solvency called for eliminating the cap on payroll taxes to solve the entire problem. Now they say it solves most of the problem. That’s because we waited too long. Eliminating the FICA cap — a step that we do not support — solves 79 percent of the problem. Now, supporters of a tax-only solution also call for adding a point to the payroll tax rate for all workers. That one point means a tax increase of $650 a year for a typical working family. Over the course of their working lives, it will come out to more than $20,000. Waiting is anything but benign.

Fantasy No. 4 is that the politics to fix entitlements will get better. In fact, the politics will get worse every election cycle. In 2012, one out of six voters was a senior citizen. By 2024, one in four will be, based on the Census Bureau’s Statistical Abstract. How will we possibly fix safety-net programs for the elderly then? The answer: on the backs of the working-age middle class.

The country and Democrats face real fiscal choices. Avoiding them in favor of fantasies is not the answer.